Economic Policy After the Omnibus

Event Description

With the 2014 omnibus budget bill nearing completion, U.S. Treasury secretary Jacob Lew outlines his economic policy priorities for the coming year with John Bussey of the Wall Street Journal. While the budget agreement will relax many of the fiscal constraints enacted under sequestration and bolster the ongoing U.S. economic recovery, Lew highlights the need for quick action on the debt ceiling as well as continued support for the long-term unemployed. Internationally, Lew discusses the progress being made in negotiations for new trade agreements with the European Union and East Asia.

Event Highlights

Jacob Lew on the pending omnibus budget bill:

"The fact is that the budget agreement, which is now being implemented through these appropriation bills, takes away some of the fiscal drag from the economy. That actually matters. Macroeconomics matter. And going from policies that push back on economic growth to creating a little bit more economic energy help."

Jacob Lew on the macroeconomic argument for extending unemployment benefits:

"All those people who are looking for work are also putting food on the table and taking care of the necessities of life, and every penny that they get, they spend."

Jacob Lew on China's continuing economic reform efforts:

"The direction of the policies that they announced in the third plenum was consistent with what they agreed to in our bilateral discussions. I think that they know that the—it's critical to the Chinese economy to let market forces drive much more, if not all, major economic policy."

BUSSEY: Welcome everybody. We're going to go a few minutes later than planned, to about 9:20, and we'll have a good opportunity for a robust question-and-answer session. So, please, be thinking of some robust questions as we go along in our conversation this morning.

Just a reminder that this is on the record. When you ask your questions later on, I'll just be asking you to identify yourself. If you can put your ringers off on your cellphones, just put it on stun, you know, whatever setting you have, that would be very helpful to us. And since we have a lot to talk about, let's jump right into it.

Secretary Lew, thank you very much for joining us. This feels like an historic week. It's not quite like a moon landing, but we appear to be very close to having a budget, which is—seems an unusual thing for the United States of America. It's not without a stopgap or so, but it looks like this is going to move fairly quickly now.

I wonder if you can talk about how this might affect business confidence, consumer confidence, going into the 2014 calendar economic year, how it affects your outlook on growth in the U.S.? But also do so in the context, if you would, of this—the strange number we got on jobs in December, which seemed like it was out of the ordinary from the trend line, which had been quite positive before, a weak jobs number in December, if that was an anomaly or if there was something that worries you in it.

LEW: Well, John, it's good to be here. Thanks so much for doing this.

I think we're starting the year off strong. We're starting the year off with economic tailwinds, not headwinds, and I'll get back to the specific number you asked about. And I think we're starting out with Congress following through on the end of last year, which was trying to get back to some kind of normalcy and away from the kind of brinksmanship and uncertainty that was causing a great deal of impact to confidence in the United States and internationally.

Obviously, we're, you know, not out of the woods completely. We still have a lot more to do to keep our economy growing. But if you look at the arc of the last half-year, the trend of economic statistics—job statistics, confidence—have been strong. It's been strong across sectors. And there's potential for more growth in a number of key areas.

I do think that the mood in Washington makes a difference, in two different ways. One, the policy actually matters. The fact is that the budget agreement, which is now being implemented through these appropriation bills, takes away some of the fiscal drag from the economy. That actually matters. Macroeconomics matter. And going from policies that push back on economic growth to creating a little bit more economic energy help.

But the question of business-as-usual versus dysfunction is extremely significant. Just a few months ago, we had a government shutdown, we were in the midst of a crisis over the borrowing authority of the United States, and it was very undermining of confidence.

Now, the reason I say we're not out of the woods completely is that as long as we still have so many Americans looking for work, our job is to focus on more growth and more jobs, and we still have some deadlines ahead of us here in Washington. We have, you know, a deadline looming in February. February 7th our borrowing authority runs out again. At that point, Congress has to act to get the borrowing authority.

BUSSEY: We'll get to—we'll get—we'll come around to that. Tell us a little bit about December, though, about what happened with the jobs number.

LEW: So it—I've spent most of the last three-and-a-half decades advising policymakers not to react to each month-to-month number too strongly, to look at the overall pattern. We will only know in several months exactly what that number means. I've read an enormous range of views as to what the number means.

I think you have to look at the kind of trend that has been clear for several months, and I don't think that one ought to look at a number that deviates from that as being in and of itself proof that—that there's been a fundamental change. Economies don't turn on a dime, so all of the evidence that there was strength in the economy is still there.

And, you know, our job is to make sure we promote more growth. Our job is to make sure we promote more investment. There are things we can do. You know, there's a debate in Washington now about whether or not to extend unemployment benefits. You can look at that in two different ways, and both are right. One, it's a question of just simple fairness, people looking for work, you know, out of work because of the deep recession that we took a long time to come out of, they need the help.

You can also look at it as a macroeconomic question. All those people who are looking for work are also putting food on the table and taking care of the necessities of life, and every penny that they get, they spend. And that's economic activity. So I hope that we get back to the discussion of how to extend unemployment benefits.

We can get in the discussion to other questions of things that we can do, but, you know, the more we do consistent with the spirit of the budget agreement that takes step after step to make progress, the better the economy's going to be. You look at the budget agreement, there are actually some things in there that, as people focus on them, you know, there's funding for manufacturing centers. There's funding for early childhood education. There are things in there that are going to be good for today and for the future of the American economy, and we can continue to take steps along that path. What the infrastructure needs in this country, it would help in the short term, it would help in the long term.

BUSSEY: So there have been a lot of good numbers in the last several months, a pretty healthy trajectory. Manufacturing growth, export growth, November numbers were really good. One number in December that was consistent with previous months is the erosion of—of the denominator in the unemployment calculation, that is, people leaving the workforce, giving up looking for work. How does that affect your growth forecast for 2014? Are you still on the—is it still expected to be in the 2 percent, you know, range for the calendar year?

LEW: Well, we'll obviously come out with our new economic projections in a few weeks when—when the budget comes out. I'm not going to kind of lift the curtain early on them, except to say that we ended the year...

BUSSEY: Just do that here. I mean, we'll keep it just between us.

(LAUGHTER)

LEW: We—we ended the year with—with confidence that the economy was doing better, and we start the year with confidence that it's continuing to do better. You know, the long-term unemployment numbers, the labor force participation rate numbers, they're very serious issues that we spend a lot of time poring over and asking what's causing it, what are the policy responses. There are a lot of, again, competing explanations, some of them demographic, some of them cyclical, some of them structural...

BUSSEY: People getting older and leaving the workforce normally.

LEW: People are getting older, and there's some normal transitions going on. It's been a long, slow recovery from a very deep financially-led recession, so there's a delay in some of the employment growth.

But it's that structural piece that we have to worry about. We really have to ask ourselves, if somebody graduated from high school or college and didn't go to work and didn't get right into the labor force, what can we do to make it easier for them to get started? What can we do to take away the skill gap that may be preventing them from getting started? And, frankly, what can we do to work with employers to take away some of stigma that is associated with not having worked for a period of time?

You know, if you graduated college or high school when unemployment was, you know, close to 10 percent, it was really hard to get that first job. And the fact that you're now delayed in getting started is something we have to worry about, how do you catch up? And, you know, frankly, that's something that's a question of public policy, but it's also a question of working with the private sector to make sure that employers are thinking about, how do we give those kids a chance?

BUSSEY: So you mentioned February 7th. That's yet another potential stumbling block for the economy, another point of uncertainty. It's the debt ceiling deadline.

Having been through this drama a couple of times now in the last couple of years, and seeing the effect on confidence, the economy, the markets, wouldn't it be in the Treasury's interest to say, look, here's our battle plan. If this thing goes to the wire again, if it's a cliffhanger, these are our priorities for spending, this is how we're going to martial our funds, we'll buy enough time past the end of February, not just for a couple of weeks, to see the economy through, don't worry, markets, don't worry, business investment, don't worry, consumer?

LEW: Well, John, I don't think any treasury secretary of either party has ever said, "Don't worry about what happens if the United States loses its capacity to borrow," because it's something to worry about. We—if we ever get to the place where the United States cannot keep all of its obligations, we are fundamentally hurting our—our standing as a country that has always honored all of its obligations. So I actually don't believe that there is any plan that could give the kind of confidence that you're describing.

You know, people ask legalistic questions about, what do you have the ability to do? And I'm asking the more fundamental question, why would anyone want to hurt the U.S. economy and hurt the recipients of payments that they're entitled to because of a self-inflicted wound, because of something that—everyone knows that the obligations are not made when the borrowing authority is raised. The obligations are being made when you vote on appropriation bills, when you vote on tax bills.

In the end, the borrowing authority merely allows you to operate under the policy decisions you've made. Congress...

BUSSEY: It's spending you've already done.

LEW: Yeah, spending, the combination of policies. Now, I—this is Congress's unique responsibility. Congress is going to have to act. It is not, I think, something that anyone should want to repeat, the kind of, you know, hair-raising brinksmanship that causes real uncertainty and anxiety in, you know, market participants and normal, you know, consumers.

I mean, when you—if you went outside of Washington in October, it didn't take very much to get people to be worried about what was happening and what was going to happen. You know, people worry about what happens if payments aren't made, what happens if there's an economic fallout that undermines their stability, their employment. These are not things that Congress should play games with. It has to be done. The sooner, the better.

You know, I think we get into a kind of Washington parlor sport of trying to figure out the precise moment when, when is the last minute? It's a mistake to go to the last minute. The build-up to the last minute causes damage. It's a mistake to wait until the 11th hour. Congress should do this as quickly as possible and as—with the least drama as possible.

And I will say that, in terms of how long Congress has, you know, we—I've communicated with Congress, saying we thought that the, you know, ability to manage through the debt limit being hit on February 7th would get us maybe to the end of February or early March. It's a very unpredictable time of year in terms of cash flow, because people are filing for tax refunds. And when you start paying tax refunds, it's a time of year when money goes out. You know, a month later, when people are paying their taxes, money comes in. You cannot get from here to there without extending the debt limit.

And I think that if Congress is looking at the numbers the way we are—we have the best data—they would see that they would be looking more at the end of February than any time in March...

(CROSSTALK)

BUSSEY: Tighter timeframe than in the past.

LEW: Yeah.

BUSSEY: So let's talk a little bit about the global economy, since that has such an impact on the health of the U.S. economy. You have just been recently in Europe. You did a trip to China and Japan and Asia a couple of months ago, were in Europe before that.

You've been counseling the Europeans, particularly the Germans, to spend more domestically as opposed to revive their economies by exports. That sounds a little bit like John Snow saying the same thing to China a few years ago, that you need to build up your domestic economy. The Germans kind of said, you know, "Leave us alone, mind your own business," when you said that. Can you—can you walk through for us what's happening, starting with Europe? Is the crisis now abating to the point where you can see growth organically?

LEW: I think if you look at Europe now compared to Europe in 2012, there's been a huge amount of progress. You know, we—we don't have to worry from day-to-day about—about a half-a-dozen countries. But they're not completely out of the woods. They're looking at having turned the corner from minus to either neutral or small positive. There's inconsistency. There's fragmentation in the financial markets. There's different—very different rates of potential growth and growth in different countries.

Our message in Europe has been that you need to do what you can do to get overall growth in Europe to a higher level, understanding that not every country has an equal capacity, that there are surplus countries that have the capacity to invest more and to create more domestic demand, and that would be good for Europe's economy, it would be good for the global economy.

I'd take a step back and just put the pieces into some perspective, because this is how I think about the global economic recovery. You know, we're now in—you know, in a growth place that many in the world envy. You know, we're in the twos. People are talking about, can we get three? You know, they're trying to get to one. You know, there's a decimal point behind the numbers they're looking at.

You know, in our most optimistic projections, we can't make up for Europe falling half a point or a point behind where it should be. We can't make up for China falling a half a point or a point behind where it should be.

So as I talk to my colleagues around the world, I say we're going to do our part. We're going to keep our economy growing. We're going to shoot to hit growth targets that—that outperform people's expectations. But you have to do the same.

So in Europe, that means countries that have surplus doing some more to stimulate investment in demand. Frankly, you know, I think if you look at the German coalition agreement and the policies they're putting in place, they are doing more. They've made a commitment to invest in infrastructure this year. I wish we could make a commitment like that here; it would be good for the United States, as well.

You know, you look over the arc of the last year, last February, March, April, the discussion was, should countries in Europe that have to meet fiscal consolidation targets do it more quickly or over a longer time horizon? They've eased the time horizon. So I think we've made progress. And I think if you look at the questions on banking reform, they've made progress. But in each of these cases, there's more to do.

So our conversations are—you know, we do have friendly differences of view on occasion, but I think, A, they have impact, and, B, we are pushing for more, because more is good for them and it's good for us.

You flip to China, it's pretty much the same story. When I meet with my Chinese counterparts, I am pretty confident that they are intent on the path of economic reform that they describe. At the same time, I am not confident about the timeframe or which targets of opportunity will be sequenced early in the queue.

And we—we continue to bring an awful lot of focus on the need for market-determined exchange rates, on competitive market determination of allocation and price of capital. And I think that they are going to move in that direction, and our interventions will be designed to speed that process up. Again, it's good for China's economy. I don't think we are asking either Europe or China to do things that aren't in their own interest.

BUSSEY: But let's come back to China a second and stay on Europe just for a minute longer. One of the areas that still needs to be resolved is financial regulatory reform. We're five years now after—after the crisis. And still there's fundamental disagreement within Europe, and between Europe and the United States, over banking requirements, the levels of reserves, even executive pay, disagreements between Britain and the rest of Europe, and Europe with the U.S.

Why can't this be resolved? We are five years into the—you know, after the crisis. Europe needs to have that confidence in its banking system for its economic well-being. Is this financial protectionism, financial regulatory protectionism, in a kind of way, playing out, we don't want to restrict our banks if you're not going to do the same thing?

LEW: You know, this is very difficult stuff. And I think we in the United States have made enormous progress. Even in this last year, we've made enormous progress implementing financial reform. I think internationally we have made and are continuing to make progress. I know my objective in the G-20 this year is going to be to bring some additional focus to the international...

BUSSEY: You're meeting next month, in February...

(CROSSTALK)

LEW: Yeah, the first meting is—is next—in February in Australia. But, you know, the G-20 and the financial stabilization board are the places where the international community comes together to have conversations about harmonizing standards.

You know, just this last weekend, some significant progress was made in terms of international standards on capital and leverage. You know, for the last year, there's been an argument about whether or not our differences were as big as people said or not as big, because of differences in the way we calculate it.

And I must say, as somebody who likes to be able to compare apples to apples, when you have conversations where people are talking past each other because, you know, one is looking at a set of numbers on a net basis and the other is looking at them on a gross basis, and trying to do the conversion in your head is almost impossible, there was an agreement to do it on a standardized basis following the rule that our regulators put in place in draft rules earlier in the year.

I think that opens the path for the United States to finalize rules in a way that's consistent with international standards. And I made clear that, as we engage in conversations internationally, we cannot weaken standards to get to international harmonization. This has to be a race to the top, not a race to the bottom.

But we should try to harmonize them to eliminate confusion, especially where the confusion is related to technical differences, as opposed to policy differences.

You know, when I look at the challenges ahead, I also look at what we've accomplished. That's much more capital in the United States banks and in global banks. We've put in place a resolution program that is something that the world is now seeing as a model, where we do stress tests, we have living wills, we have a single point of entry in the event of a failure.

And we're seeing those become things that the world—you know, other regulators around the world are trying to put in place. We have one country, you know, so we pass rules, we have multiple regulators, and it's sometimes a challenge to get our regulators to the same place, but we've been doing, you know, a lot of work to get our regulators to consistently put forth standards in these areas.

You go to Europe, and you have, you know, multiple countries and multiple legislatures that have to take action after there's an agreement in the larger group. So we're very sympathetic to the challenges of coming up with policies.

You know, at the end of the year, the progress that was made in Europe on banking reform put in place a mechanism that is new and important. I mean, it is a path towards over a period of years having a fund that banks contribute to that's loosely modeled on our FDIC. We don't think it's big enough; we don't think it's fast enough.

As I look to the future, the challenges of 2014 and beyond have to deal not with what were the risks in 2008, but what are the risks in 2014 and beyond? And we're focusing heavily on issues like shadow banking. Those are issues the global financial community...

LEW: Yeah, it—there's a natural shift of money from the more controlled environment to the less controlled environment, and the risks are not always as visible because of a lighter regulatory presence and because of a lower set of requirements.

So that's an area that we're focusing on. I think my international colleagues also are focusing on it. And I think we can make—we have made progress. We could make more progress.

Cross-border resolution, this gets to your question about the differences of standards. You know, I think we learned from the collapse of Lehman that, you know, the problems when a major financial institution fails are not—don't respect international boundaries. The transactions don't live within one country; the implications don't live within one country.

It's very important that there be confidence that when an institution fails, if an institution fails, that the resolution internationally works, because that's the way you can avoid the domino effect that—that is an accelerant to a financial and economic crisis. I think we have more work to do there. We've made progress; we need to make more progress.

BUSSEY: Just on China for a moment, before we get to trade, and then I want to get to questions in just a second. You mentioned China's economic reform program. So far, we've heard a fair amount of discussion of this, and it's going to focus heavily on developing out the private sector of China. Xi Jinping has said as much.

Is that good or bad for American business? Is that something that's going to be more inclusive of U.S. business or are we seeing the cultivation of national champions in—in China to the continued exclusion—it's not entirely—but to the continued exclusion of a lot of involvement from the U.S.? This anti-monopoly law, using the anti-monopoly law right now to hammer foreign businesses is reminiscent of the indigenous innovation problems that American businesses have. So it doesn't feel like the situation's changing there much.

LEW: Well, the goal has to be to open markets and to have market forces determine the answer to the question that you're asking. If there are artificial barriers in place, then it's not really letting market forces work. I think we will get some tests pretty soon.

You know, when we had our Strategic and Economic Dialogue last summer, we had a set of important agreements come out of it. I was very pleased that China moved on opening a Shanghai free trade zone. They moved on altering a decades-long policy of presuming industries were closed to foreign activity to presuming that they're open unless individually closed.

We've yet to see what the implementation of those policies look like. So if the Shanghai free trade zone opens up to real competition, for example, to U.S. financial firms, that will be a meaningful signal. As they go through the designations of what's open and what's closed, if you designate everything as closed, it doesn't amount to real change.

It's still early. The direction of the policies that they announced in the third plenum was consistent with what they agreed to in our bilateral discussions. I think that they know that the—it's critical to the Chinese economy to let market forces drive much more, if not all, major economic policy.

They look at state-owned enterprises, and they see built-up inventory that has nowhere to go. They see empty buildings. They know that that is not a way to maintain the growth that they need for China to be where it needs to be in 2014, '15 and beyond.

Now, at the same time, transition is difficult in any economy. It's difficult in our economy; it's difficult in their economy. So they are obviously concerned about the pace at which change happens and managing it. But trying to stop it would be very damaging to China's economy. And I think they know that.

You know, I can't tell you that at the end of this year we'll be able to say they made the move we hoped they would make. I can tell you that we're going to engage with them at high levels on a consistent basis to keep pressing forward, making the case, and I believe that's welcome.

When I was in China just a few weeks ago, you know, it was important for the president to meet with us, to meet with me. You know, we had an exchange that was our second exchange in the time I've been secretary. And when I meet with my counterpart, the vice premier, we talk about the tough issues.

And they don't tell us to stay out of their business. They want to learn from our economic experience. I think our continuing to bring focus to these issues is something that helps them to make progress. But I approach it in a very clearheaded way. Intentions are critical, and they're important, that it's results in the end that matter.

BUSSEY: Well, one of the pressures that might be brought to bear on China and Europe are these two new trade agreements that are being negotiated now, the TTIP in Asia—Trans-Pacific Partnership in Asia, and TTIP in Europe.

Can you get those trade agreements without fast-track authority from Congress? These countries don't want to be negotiating with congresspeople. They want to be negotiating with an administration that can promise them that the deal that they're striking is actually the deal that's going to be put into force.

LEW: Well, I think we've made it clear that we think fast-track authority is important, and it's something we are going to work with the Congress on. As far as the negotiations go, I remember when we started working on the Trans-Pacific Partnership, TPP, back in 2009. And there were skeptics who said, you can't start a conversation setting high standards with some of the smaller countries in the region and think that the big countries are going to join. You look at where we are now, the big countries are at the table, and even bigger countries are contemplating coming to the table.

BUSSEY: Japan, yeah.

LEW: Japan is at the table, and China has, you know, mused out loud about, should they come to the table? That is an enormous change from 2009. so I think the principle of setting high-quality standards as being the terms of the future of trade relations in the Pacific and the Atlantic has already moved very far.

There are still tough issues to be negotiated. You know, I've never been a trade negotiator. I would defer to people who've been successful trade negotiators in the past. The tough issues are always resolved at the end. It's not as if any party is going to, before the final round of negotiations, make the things that are really difficult for them at home.

So we've got to keep driving forward, getting to those final tough issues. And we have to lock in both trade agreements and fast-track authority. We need to do both.

BUSSEY: Let's—let's get to some questions. And if I could just ask you to identify yourself and who you're with. Yes, please?

QUESTION: Hi, Nelson Cunningham with McLarty Associates. Mr. Secretary, good to see you. Thank you for doing this.

Last year, in the president's budget, for the first time that I can recall, a Democratic president began to propose changes in the growth of entitlement programs, designed to rein in that growth. Did it disappoint you that that conversation was not picked up by the other side? And would you expect the president's budget this year to re-propose and try to start that conversation once again?

LEW: Look, I think we ended the year and begin this year in a place where we've made some small progress, but important progress, getting back to a more normal way of Congress doing fiscal policy, making budgets. And I think that's very important.

Obviously, we started a year in a place where people were talking about a grand bargain. The president put out a budget that did have very tough policies in it that are hard in terms of making changes to entitlement programs. He also had a tax reform proposal that would've raise revenues, so in a balanced way, we would've been able to put in place what was really at the core of earlier negotiations that he had been having with Republican leaders.

I—having worked on these issues for most of the last 30 years—would have hoped that we could have reached an agreement, because I thought then—and I continue to think—that would be in the best interest of our long-term fiscal path, our long-term economic path.

I think that, you know, the president's budget will speak for itself in just a few weeks. I'm not going to get ahead of him announcing any of his specific policies. But I think he demonstrated last year in his budget that he was—remained committed to a fair and balanced approach to having long-term fiscal policies that keep us on the right path. And I think that, you know, last year's budget reflected a deep—a deep set of convictions.

BUSSEY: Yes, please, in the back here.

QUESTION: Secretary, David Sanger from the New York Times. Good to see you. I wanted to ask you about China and cyber, a big issue when the Sunnylands summit came up and a continuing issue at your economic and strategic dialogue.

There's a sense that the Snowden revelations have sort of taken the pressure off of the Chinese. It has given them a way to argue—whether you believe the argument or not—that we're doing something akin to what they're doing and there's very little evidence that you see much of an abatement of the kind of behavior that you were so concerned about, about this time last year. So I was wondering if you could give us a sense of where that is going?

LEW: So, David, I have to push back on the premise a bit. I don't think there's any way to compare the kinds of intelligence activities that almost every country engages in for national security purposes with the deliberate theft of trade secrets for commercial advantage. There's no comparison. I don't think that anyone credibly believes that there is a comparison, and I don't think that the issue has in any way been taken off the table in terms of our conversation with the Chinese.

QUESTION: (OFF-MIKE)

LEW: You know, we have been very clear. I can't—I can't tell you that—that they have done an about-face. But I also think they understand that for them to play the role that they want to play in the world, as one of the great powers, as one of the rule-makers for the world, you can't be a rule-maker and engage in those kinds of practices.

BUSSEY: Yes, in the back here.

QUESTION: Barry Wood, RTHK in Hong Kong. Mr. Secretary, what about the IMF, money for the IMF, the overdue payments that all of the other countries talk about? And what about boosting the representation of developing countries, emerging markets within the IMF? It's moved at a snail's pace. What's your view on that?

LEW: I think that the United States' commitment to the IMF remains solid. We're the biggest contributor and participant in the IMF. It's critically important to U.S. economic well-being that the IMF be strong and that we have the kind of role in it that we've had since its inception after World War II.

In 2010, there was a negotiation which I think made very important progress in terms of rebalancing some of the shares of interest in the IMF, while maintaining the U.S. position with a significant enough share to have a controlling voice on important questions.

I have made no secret of the fact that I think it's critical for us to finalize the ratification of those. We made a full-court press to get it done and got close, but didn't get it done this past week. We are continuing to stand by our commitment, and we will get it done.

BUSSEY: Yes, please, right here.

QUESTION: Thanks. Elisa Massimino with Human Rights First. My question is about the role of money in the supply chains that enable mass atrocities, like those that are going on in Syria. Some people have argued that—including some former Treasury officials—that the Treasury ought to take stronger action against Russian banks that are involved directly in financing arms shipments to Assad. I wonder what you think about that and if—I know it can be awkward, since we're now partners with Russia in trying to resolve the situation, but do you think Treasury ought to be taking stronger action in investigating and even designating Russian banks that are directly involved in supporting Assad?

LEW: We—you know, through our responsibilities in overseeing the flows of financial funds and whether or not there is compliance with U.S. and international laws with regard to them, we have been very aggressive following the flow of funds. And when things violate the law, we take action without regard to the home country of the financial institution. It doesn't always make us popular. Sometimes it's friends who are very close; sometimes it's countries with whom we have more tension.

But, you know, our policy, whether it's sanctions regarding Syria or Iran or other designated countries, the designations aren't all the same, but our policy is to be vigilant in using these financial tools. So I would just say that we implement these laws and we don't look at the country of origin.

BUSSEY: Yes, please?

QUESTION: Father Andrew from the St. Paul's Foundation. Thank you so much for your government service, Mr. Secretary, particularly for Tip O'Neill. I grew up in the district.

St. Paul's distributes alms to the poor all over the world, in 30 different countries, in areas of severe conflict. I want to touch back on OFAC. There seems to be an extreme level—or extreme lack of accountability among the federal officers at OFAC. We can't get a name, we can't get a number when we're trying to provide food, shelter, clothing to people in refugee camps outside of Syria. We're trying to make financial transfers. Our banks have a question for OFAC, we have a conversation with OFAC. We can't seem to get anybody at the table.

How would you propose building in accountability so that we can provide these needed resources to people who have the opportunity to be fanatics and fundamentalists, but aren't, precisely because of the alms and the aid that we're giving them?

LEW: You know, I think OFAC does an outstanding job in very difficult circumstances. And there are often cases that are just heart-wrenching in terms of flows of funds that are inconsistent with our laws, but that have the effect of providing relief at the same time. Not just in Syria, it comes up in many troubled parts of the world.

I'm happy to look into the question of access and communication. Obviously, we strive to a high level of clarity and communication. But sometimes these issues relate to specific matters that are not public matters. And I would have to go and look at the specific matter in order to respond.

QUESTION: There is a General License 11A.

BUSSEY: Yes, please. Back here. Yes.

QUESTION: Thank you. Good morning. Paula Stern, Stern Group. My question's about the trade promotion authority. And the headline yesterday in one of the papers about the pushback from the Democrats. We will need bipartisan approval of authority for fast-track. And given the fact that we started the year with this new budget and deal in Congress, which suggests that maybe we're not going to be as toxic this year as—as the past, I'm wondering what your plans are, really, for whipping into place a bipartisan authority for the president, given the pushback from some of the Democrats?

LEW: I don't think there's anything new or unusual about the current need for there to be bipartisan support for trade promotion authority in order for it to pass. That's always required a bipartisan effort. There's always been challenges on both sides for different reasons.

You know, we have worked on a bipartisan basis with the leaders of the committees, and we'll continue to work on a bipartisan basis with the Congress to get it done. The president has made clear that it's important. It's one of those issues where there is the ability for there to be a bipartisan conversation. And it's never easy, so it's going to require effort.

BUSSEY: Do you care to venture an estimate—the question about a timeframe on this one?

(CROSSTALK)

BUSSEY: And on resolution of TPP and TTIP?

LEW: I, obviously, am very hopeful that the next round of discussions on TPP really accelerates the pace of progress, and that will have implications in terms of other schedules. So we'll have to see how the pace goes.

BUSSEY: Six months, 12 months?

LEW: I'm not going to put a number on it. Obviously, Ambassador Froman has been pushing. He pushed to have the meeting at the end of last year be an issue where the final issues get raised. He's going to continue pressing so that those issues, those hard issues that require countries to kind of move across the finish line get queued up. And I believe it will happen.

BUSSEY: Ambassador Froman, the U.S. trade representative...

LEW: U.S. trade representative.

BUSSEY: Yes, please, right here.

QUESTION: Twenty years ago, Jim Baker engineered the Plaza Agreement. And with the devaluation of the dollar, it stabilized our current accounts for almost 10 years. Recently, the Japanese have engineered a 20 percent devaluation of their currency. Would you expect it to have a similar impact on Japan's trade account? And how will the South Koreans and others react to this new change in their competitiveness?

LEW: You know, I think the challenges facing Japan and their economy have been profound for almost two decades. I think, you know, it has been a recurring argument made by the United States, the international community that Japan needed to take action to reverse almost two decades of deflation and economic decline.

You know, they have put in place policies. We still have to see what the so-called third arrow of their policies are. Those are the real reforms that will determine whether or not the future is one where they'll grow their domestic economy, grow domestic demand, and be able to continue to have the kind of growth that they're now seeing because of the shorter-term policies they've put into effect.

I think it was very important that last year, roughly this time, in February, there was an agreement at the G-7 and the G-20 that has stuck, which is that countries will be—hold themselves to the agreed-upon rule that they will use domestic tools for domestic purposes to grow their economy. That is a critically important frame, and it's something that Japan has to stick to.

You know, they need to get their domestic economy growing. Their long-term growth can't be rooted in a strategy that ultimately turns in any way towards, you know, reliance on unfair advantage because of exchange rate.

You know, we have kept an eye on that. Our currency report analyzed it very closely. We continue to analyze it very closely. And we said, as long as they stick to those rules, domestic tools for domestic purposes, it's in Japan's interests and the world's interests for Japan's economy to grow.

You know, the three big—you know, four big economies of the world are the United States, Europe, China and Japan. If any one of them is performing particularly sub-par, it creates problems that flow well beyond the borders. And there's a balance where—you know, we've got to keep an eye on it. We can't let it turn from the kinds of policies that are domestic policies for domestic purposes, but it is important for Japan, also, to grow.

BUSSEY: So we have two minutes' time for just one more question, right down here, the back of the room.

QUESTION: Thank you very much. My name is Chi Mi Nguyen (ph) with Voice of Vietnamese Americans. Thank you, Secretary.

I come back to your focus on standards and implementation. And I'd like to hear from you the lessons learned from our WTO and the coming TPP and TTIPs and other free trade agreements, because I think there's a lot of doubt and uncertainty in our (inaudible) regarding the unemployment that we've been experiencing for the last 5 years, actually for the last 10 years.

You see, since the WTO, we have suffered the currency war and many other wars with rising power China. And the recent still anti-dumping situation with the WTO that's happened threatened our industry and our market.

So our question to you is, as the treasurer, secretary of treasury, where do you see we need to do to ensure the implementation phase of our agreements to secure our currency and our jobs? Thank you, for the U.S., for the Americans.

LEW: Yeah, I think we have been very clear in all of our conversations, in the multilateral negotiations and our bilateral conversations, that we need a level playing field with clear rules, and those rules need to be enforced.

So taking enforcement actions to make sure that the agreements are adhered to is a critical part of having effective rules of the road. Rules that aren't followed aren't really rules.

So that's why WTO actions are brought from time to time. And the goal is to have countries observe the rules, not to be in a place where one has to be taking actions to—whether it's for one industry or another—to enforce the rules.

I think that if you go back to what I was saying a few minutes ago, in terms of the spirit of the negotiation of TPP, it's very encouraging. You know, I was just recently in Asia, went to a range of countries with extremely different economies. I was in Japan, China, Malaysia, Vietnam, and Singapore.

In each of the countries, at a very different point of internal economic development, there was a desire to participate in a high-standard trade agreement. There was also anxiety about, what did that mean in terms of the domestic economy? What would be the transition rules? What would be the reflection of the fact that countries don't come in exactly the same position?

And those are the kinds of issues that are being negotiated in the TPP with a sensitivity to the fact that if we get all of the countries to credible and enforceable, high-level rules, it's good for each of us individually and it's good for us globally. But it's not good if the rules are broken and we need to be vigilant as we are to make sure that, when we make agreements, the agreements are kept.

BUSSEY: Secretary Lew, you've got to get to work before the stock market opens at 9:30, so I want to—I want to thank you and—for joining us today and also thank the Council on Foreign Relations for holding this event.

LEW: Thank you very much, John.

BUSSEY: Thanks very much.

(APPLAUSE)

END

BUSSEY: Welcome everybody. We're going to go a few minutes later than planned, to about 9:20, and we'll have a good opportunity for a robust question-and-answer session. So, please, be thinking of some robust questions as we go along in our conversation this morning.

Just a reminder that this is on the record. When you ask your questions later on, I'll just be asking you to identify yourself. If you can put your ringers off on your cellphones, just put it on stun, you know, whatever setting you have, that would be very helpful to us. And since we have a lot to talk about, let's jump right into it.

Secretary Lew, thank you very much for joining us. This feels like an historic week. It's not quite like a moon landing, but we appear to be very close to having a budget, which is—seems an unusual thing for the United States of America. It's not without a stopgap or so, but it looks like this is going to move fairly quickly now.

I wonder if you can talk about how this might affect business confidence, consumer confidence, going into the 2014 calendar economic year, how it affects your outlook on growth in the U.S.? But also do so in the context, if you would, of this—the strange number we got on jobs in December, which seemed like it was out of the ordinary from the trend line, which had been quite positive before, a weak jobs number in December, if that was an anomaly or if there was something that worries you in it.

LEW: Well, John, it's good to be here. Thanks so much for doing this.

I think we're starting the year off strong. We're starting the year off with economic tailwinds, not headwinds, and I'll get back to the specific number you asked about. And I think we're starting out with Congress following through on the end of last year, which was trying to get back to some kind of normalcy and away from the kind of brinksmanship and uncertainty that was causing a great deal of impact to confidence in the United States and internationally.

Obviously, we're, you know, not out of the woods completely. We still have a lot more to do to keep our economy growing. But if you look at the arc of the last half-year, the trend of economic statistics—job statistics, confidence—have been strong. It's been strong across sectors. And there's potential for more growth in a number of key areas.

I do think that the mood in Washington makes a difference, in two different ways. One, the policy actually matters. The fact is that the budget agreement, which is now being implemented through these appropriation bills, takes away some of the fiscal drag from the economy. That actually matters. Macroeconomics matter. And going from policies that push back on economic growth to creating a little bit more economic energy help.

But the question of business-as-usual versus dysfunction is extremely significant. Just a few months ago, we had a government shutdown, we were in the midst of a crisis over the borrowing authority of the United States, and it was very undermining of confidence.

Now, the reason I say we're not out of the woods completely is that as long as we still have so many Americans looking for work, our job is to focus on more growth and more jobs, and we still have some deadlines ahead of us here in Washington. We have, you know, a deadline looming in February. February 7th our borrowing authority runs out again. At that point, Congress has to act to get the borrowing authority.

BUSSEY: We'll get to—we'll get—we'll come around to that. Tell us a little bit about December, though, about what happened with the jobs number.

LEW: So it—I've spent most of the last three-and-a-half decades advising policymakers not to react to each month-to-month number too strongly, to look at the overall pattern. We will only know in several months exactly what that number means. I've read an enormous range of views as to what the number means.

I think you have to look at the kind of trend that has been clear for several months, and I don't think that one ought to look at a number that deviates from that as being in and of itself proof that—that there's been a fundamental change. Economies don't turn on a dime, so all of the evidence that there was strength in the economy is still there.

And, you know, our job is to make sure we promote more growth. Our job is to make sure we promote more investment. There are things we can do. You know, there's a debate in Washington now about whether or not to extend unemployment benefits. You can look at that in two different ways, and both are right. One, it's a question of just simple fairness, people looking for work, you know, out of work because of the deep recession that we took a long time to come out of, they need the help.

You can also look at it as a macroeconomic question. All those people who are looking for work are also putting food on the table and taking care of the necessities of life, and every penny that they get, they spend. And that's economic activity. So I hope that we get back to the discussion of how to extend unemployment benefits.

We can get in the discussion to other questions of things that we can do, but, you know, the more we do consistent with the spirit of the budget agreement that takes step after step to make progress, the better the economy's going to be. You look at the budget agreement, there are actually some things in there that, as people focus on them, you know, there's funding for manufacturing centers. There's funding for early childhood education. There are things in there that are going to be good for today and for the future of the American economy, and we can continue to take steps along that path. What the infrastructure needs in this country, it would help in the short term, it would help in the long term.

BUSSEY: So there have been a lot of good numbers in the last several months, a pretty healthy trajectory. Manufacturing growth, export growth, November numbers were really good. One number in December that was consistent with previous months is the erosion of—of the denominator in the unemployment calculation, that is, people leaving the workforce, giving up looking for work. How does that affect your growth forecast for 2014? Are you still on the—is it still expected to be in the 2 percent, you know, range for the calendar year?

LEW: Well, we'll obviously come out with our new economic projections in a few weeks when—when the budget comes out. I'm not going to kind of lift the curtain early on them, except to say that we ended the year...

BUSSEY: Just do that here. I mean, we'll keep it just between us.

(LAUGHTER)

LEW: We—we ended the year with—with confidence that the economy was doing better, and we start the year with confidence that it's continuing to do better. You know, the long-term unemployment numbers, the labor force participation rate numbers, they're very serious issues that we spend a lot of time poring over and asking what's causing it, what are the policy responses. There are a lot of, again, competing explanations, some of them demographic, some of them cyclical, some of them structural...

BUSSEY: People getting older and leaving the workforce normally.

LEW: People are getting older, and there's some normal transitions going on. It's been a long, slow recovery from a very deep financially-led recession, so there's a delay in some of the employment growth.

But it's that structural piece that we have to worry about. We really have to ask ourselves, if somebody graduated from high school or college and didn't go to work and didn't get right into the labor force, what can we do to make it easier for them to get started? What can we do to take away the skill gap that may be preventing them from getting started? And, frankly, what can we do to work with employers to take away some of stigma that is associated with not having worked for a period of time?

You know, if you graduated college or high school when unemployment was, you know, close to 10 percent, it was really hard to get that first job. And the fact that you're now delayed in getting started is something we have to worry about, how do you catch up? And, you know, frankly, that's something that's a question of public policy, but it's also a question of working with the private sector to make sure that employers are thinking about, how do we give those kids a chance?

BUSSEY: So you mentioned February 7th. That's yet another potential stumbling block for the economy, another point of uncertainty. It's the debt ceiling deadline.

Having been through this drama a couple of times now in the last couple of years, and seeing the effect on confidence, the economy, the markets, wouldn't it be in the Treasury's interest to say, look, here's our battle plan. If this thing goes to the wire again, if it's a cliffhanger, these are our priorities for spending, this is how we're going to martial our funds, we'll buy enough time past the end of February, not just for a couple of weeks, to see the economy through, don't worry, markets, don't worry, business investment, don't worry, consumer?

LEW: Well, John, I don't think any treasury secretary of either party has ever said, "Don't worry about what happens if the United States loses its capacity to borrow," because it's something to worry about. We—if we ever get to the place where the United States cannot keep all of its obligations, we are fundamentally hurting our—our standing as a country that has always honored all of its obligations. So I actually don't believe that there is any plan that could give the kind of confidence that you're describing.

You know, people ask legalistic questions about, what do you have the ability to do? And I'm asking the more fundamental question, why would anyone want to hurt the U.S. economy and hurt the recipients of payments that they're entitled to because of a self-inflicted wound, because of something that—everyone knows that the obligations are not made when the borrowing authority is raised. The obligations are being made when you vote on appropriation bills, when you vote on tax bills.

In the end, the borrowing authority merely allows you to operate under the policy decisions you've made. Congress...

BUSSEY: It's spending you've already done.

LEW: Yeah, spending, the combination of policies. Now, I—this is Congress's unique responsibility. Congress is going to have to act. It is not, I think, something that anyone should want to repeat, the kind of, you know, hair-raising brinksmanship that causes real uncertainty and anxiety in, you know, market participants and normal, you know, consumers.

I mean, when you—if you went outside of Washington in October, it didn't take very much to get people to be worried about what was happening and what was going to happen. You know, people worry about what happens if payments aren't made, what happens if there's an economic fallout that undermines their stability, their employment. These are not things that Congress should play games with. It has to be done. The sooner, the better.

You know, I think we get into a kind of Washington parlor sport of trying to figure out the precise moment when, when is the last minute? It's a mistake to go to the last minute. The build-up to the last minute causes damage. It's a mistake to wait until the 11th hour. Congress should do this as quickly as possible and as—with the least drama as possible.

And I will say that, in terms of how long Congress has, you know, we—I've communicated with Congress, saying we thought that the, you know, ability to manage through the debt limit being hit on February 7th would get us maybe to the end of February or early March. It's a very unpredictable time of year in terms of cash flow, because people are filing for tax refunds. And when you start paying tax refunds, it's a time of year when money goes out. You know, a month later, when people are paying their taxes, money comes in. You cannot get from here to there without extending the debt limit.

And I think that if Congress is looking at the numbers the way we are—we have the best data—they would see that they would be looking more at the end of February than any time in March...

(CROSSTALK)

BUSSEY: Tighter timeframe than in the past.

LEW: Yeah.

BUSSEY: So let's talk a little bit about the global economy, since that has such an impact on the health of the U.S. economy. You have just been recently in Europe. You did a trip to China and Japan and Asia a couple of months ago, were in Europe before that.

You've been counseling the Europeans, particularly the Germans, to spend more domestically as opposed to revive their economies by exports. That sounds a little bit like John Snow saying the same thing to China a few years ago, that you need to build up your domestic economy. The Germans kind of said, you know, "Leave us alone, mind your own business," when you said that. Can you—can you walk through for us what's happening, starting with Europe? Is the crisis now abating to the point where you can see growth organically?

LEW: I think if you look at Europe now compared to Europe in 2012, there's been a huge amount of progress. You know, we—we don't have to worry from day-to-day about—about a half-a-dozen countries. But they're not completely out of the woods. They're looking at having turned the corner from minus to either neutral or small positive. There's inconsistency. There's fragmentation in the financial markets. There's different—very different rates of potential growth and growth in different countries.

Our message in Europe has been that you need to do what you can do to get overall growth in Europe to a higher level, understanding that not every country has an equal capacity, that there are surplus countries that have the capacity to invest more and to create more domestic demand, and that would be good for Europe's economy, it would be good for the global economy.

I'd take a step back and just put the pieces into some perspective, because this is how I think about the global economic recovery. You know, we're now in—you know, in a growth place that many in the world envy. You know, we're in the twos. People are talking about, can we get three? You know, they're trying to get to one. You know, there's a decimal point behind the numbers they're looking at.

You know, in our most optimistic projections, we can't make up for Europe falling half a point or a point behind where it should be. We can't make up for China falling a half a point or a point behind where it should be.

So as I talk to my colleagues around the world, I say we're going to do our part. We're going to keep our economy growing. We're going to shoot to hit growth targets that—that outperform people's expectations. But you have to do the same.

So in Europe, that means countries that have surplus doing some more to stimulate investment in demand. Frankly, you know, I think if you look at the German coalition agreement and the policies they're putting in place, they are doing more. They've made a commitment to invest in infrastructure this year. I wish we could make a commitment like that here; it would be good for the United States, as well.

You know, you look over the arc of the last year, last February, March, April, the discussion was, should countries in Europe that have to meet fiscal consolidation targets do it more quickly or over a longer time horizon? They've eased the time horizon. So I think we've made progress. And I think if you look at the questions on banking reform, they've made progress. But in each of these cases, there's more to do.

So our conversations are—you know, we do have friendly differences of view on occasion, but I think, A, they have impact, and, B, we are pushing for more, because more is good for them and it's good for us.

You flip to China, it's pretty much the same story. When I meet with my Chinese counterparts, I am pretty confident that they are intent on the path of economic reform that they describe. At the same time, I am not confident about the timeframe or which targets of opportunity will be sequenced early in the queue.

And we—we continue to bring an awful lot of focus on the need for market-determined exchange rates, on competitive market determination of allocation and price of capital. And I think that they are going to move in that direction, and our interventions will be designed to speed that process up. Again, it's good for China's economy. I don't think we are asking either Europe or China to do things that aren't in their own interest.

BUSSEY: But let's come back to China a second and stay on Europe just for a minute longer. One of the areas that still needs to be resolved is financial regulatory reform. We're five years now after—after the crisis. And still there's fundamental disagreement within Europe, and between Europe and the United States, over banking requirements, the levels of reserves, even executive pay, disagreements between Britain and the rest of Europe, and Europe with the U.S.

Why can't this be resolved? We are five years into the—you know, after the crisis. Europe needs to have that confidence in its banking system for its economic well-being. Is this financial protectionism, financial regulatory protectionism, in a kind of way, playing out, we don't want to restrict our banks if you're not going to do the same thing?

LEW: You know, this is very difficult stuff. And I think we in the United States have made enormous progress. Even in this last year, we've made enormous progress implementing financial reform. I think internationally we have made and are continuing to make progress. I know my objective in the G-20 this year is going to be to bring some additional focus to the international...

BUSSEY: You're meeting next month, in February...

(CROSSTALK)

LEW: Yeah, the first meting is—is next—in February in Australia. But, you know, the G-20 and the financial stabilization board are the places where the international community comes together to have conversations about harmonizing standards.

You know, just this last weekend, some significant progress was made in terms of international standards on capital and leverage. You know, for the last year, there's been an argument about whether or not our differences were as big as people said or not as big, because of differences in the way we calculate it.

And I must say, as somebody who likes to be able to compare apples to apples, when you have conversations where people are talking past each other because, you know, one is looking at a set of numbers on a net basis and the other is looking at them on a gross basis, and trying to do the conversion in your head is almost impossible, there was an agreement to do it on a standardized basis following the rule that our regulators put in place in draft rules earlier in the year.

I think that opens the path for the United States to finalize rules in a way that's consistent with international standards. And I made clear that, as we engage in conversations internationally, we cannot weaken standards to get to international harmonization. This has to be a race to the top, not a race to the bottom.

But we should try to harmonize them to eliminate confusion, especially where the confusion is related to technical differences, as opposed to policy differences.

You know, when I look at the challenges ahead, I also look at what we've accomplished. That's much more capital in the United States banks and in global banks. We've put in place a resolution program that is something that the world is now seeing as a model, where we do stress tests, we have living wills, we have a single point of entry in the event of a failure.

And we're seeing those become things that the world—you know, other regulators around the world are trying to put in place. We have one country, you know, so we pass rules, we have multiple regulators, and it's sometimes a challenge to get our regulators to the same place, but we've been doing, you know, a lot of work to get our regulators to consistently put forth standards in these areas.

You go to Europe, and you have, you know, multiple countries and multiple legislatures that have to take action after there's an agreement in the larger group. So we're very sympathetic to the challenges of coming up with policies.

You know, at the end of the year, the progress that was made in Europe on banking reform put in place a mechanism that is new and important. I mean, it is a path towards over a period of years having a fund that banks contribute to that's loosely modeled on our FDIC. We don't think it's big enough; we don't think it's fast enough.

As I look to the future, the challenges of 2014 and beyond have to deal not with what were the risks in 2008, but what are the risks in 2014 and beyond? And we're focusing heavily on issues like shadow banking. Those are issues the global financial community...

LEW: Yeah, it—there's a natural shift of money from the more controlled environment to the less controlled environment, and the risks are not always as visible because of a lighter regulatory presence and because of a lower set of requirements.

So that's an area that we're focusing on. I think my international colleagues also are focusing on it. And I think we can make—we have made progress. We could make more progress.

Cross-border resolution, this gets to your question about the differences of standards. You know, I think we learned from the collapse of Lehman that, you know, the problems when a major financial institution fails are not—don't respect international boundaries. The transactions don't live within one country; the implications don't live within one country.

It's very important that there be confidence that when an institution fails, if an institution fails, that the resolution internationally works, because that's the way you can avoid the domino effect that—that is an accelerant to a financial and economic crisis. I think we have more work to do there. We've made progress; we need to make more progress.

BUSSEY: Just on China for a moment, before we get to trade, and then I want to get to questions in just a second. You mentioned China's economic reform program. So far, we've heard a fair amount of discussion of this, and it's going to focus heavily on developing out the private sector of China. Xi Jinping has said as much.

Is that good or bad for American business? Is that something that's going to be more inclusive of U.S. business or are we seeing the cultivation of national champions in—in China to the continued exclusion—it's not entirely—but to the continued exclusion of a lot of involvement from the U.S.? This anti-monopoly law, using the anti-monopoly law right now to hammer foreign businesses is reminiscent of the indigenous innovation problems that American businesses have. So it doesn't feel like the situation's changing there much.

LEW: Well, the goal has to be to open markets and to have market forces determine the answer to the question that you're asking. If there are artificial barriers in place, then it's not really letting market forces work. I think we will get some tests pretty soon.

You know, when we had our Strategic and Economic Dialogue last summer, we had a set of important agreements come out of it. I was very pleased that China moved on opening a Shanghai free trade zone. They moved on altering a decades-long policy of presuming industries were closed to foreign activity to presuming that they're open unless individually closed.

We've yet to see what the implementation of those policies look like. So if the Shanghai free trade zone opens up to real competition, for example, to U.S. financial firms, that will be a meaningful signal. As they go through the designations of what's open and what's closed, if you designate everything as closed, it doesn't amount to real change.

It's still early. The direction of the policies that they announced in the third plenum was consistent with what they agreed to in our bilateral discussions. I think that they know that the—it's critical to the Chinese economy to let market forces drive much more, if not all, major economic policy.

They look at state-owned enterprises, and they see built-up inventory that has nowhere to go. They see empty buildings. They know that that is not a way to maintain the growth that they need for China to be where it needs to be in 2014, '15 and beyond.

Now, at the same time, transition is difficult in any economy. It's difficult in our economy; it's difficult in their economy. So they are obviously concerned about the pace at which change happens and managing it. But trying to stop it would be very damaging to China's economy. And I think they know that.

You know, I can't tell you that at the end of this year we'll be able to say they made the move we hoped they would make. I can tell you that we're going to engage with them at high levels on a consistent basis to keep pressing forward, making the case, and I believe that's welcome.

When I was in China just a few weeks ago, you know, it was important for the president to meet with us, to meet with me. You know, we had an exchange that was our second exchange in the time I've been secretary. And when I meet with my counterpart, the vice premier, we talk about the tough issues.

And they don't tell us to stay out of their business. They want to learn from our economic experience. I think our continuing to bring focus to these issues is something that helps them to make progress. But I approach it in a very clearheaded way. Intentions are critical, and they're important, that it's results in the end that matter.

BUSSEY: Well, one of the pressures that might be brought to bear on China and Europe are these two new trade agreements that are being negotiated now, the TTIP in Asia—Trans-Pacific Partnership in Asia, and TTIP in Europe.

Can you get those trade agreements without fast-track authority from Congress? These countries don't want to be negotiating with congresspeople. They want to be negotiating with an administration that can promise them that the deal that they're striking is actually the deal that's going to be put into force.

LEW: Well, I think we've made it clear that we think fast-track authority is important, and it's something we are going to work with the Congress on. As far as the negotiations go, I remember when we started working on the Trans-Pacific Partnership, TPP, back in 2009. And there were skeptics who said, you can't start a conversation setting high standards with some of the smaller countries in the region and think that the big countries are going to join. You look at where we are now, the big countries are at the table, and even bigger countries are contemplating coming to the table.

BUSSEY: Japan, yeah.

LEW: Japan is at the table, and China has, you know, mused out loud about, should they come to the table? That is an enormous change from 2009. so I think the principle of setting high-quality standards as being the terms of the future of trade relations in the Pacific and the Atlantic has already moved very far.

There are still tough issues to be negotiated. You know, I've never been a trade negotiator. I would defer to people who've been successful trade negotiators in the past. The tough issues are always resolved at the end. It's not as if any party is going to, before the final round of negotiations, make the things that are really difficult for them at home.

So we've got to keep driving forward, getting to those final tough issues. And we have to lock in both trade agreements and fast-track authority. We need to do both.

BUSSEY: Let's—let's get to some questions. And if I could just ask you to identify yourself and who you're with. Yes, please?

QUESTION: Hi, Nelson Cunningham with McLarty Associates. Mr. Secretary, good to see you. Thank you for doing this.

Last year, in the president's budget, for the first time that I can recall, a Democratic president began to propose changes in the growth of entitlement programs, designed to rein in that growth. Did it disappoint you that that conversation was not picked up by the other side? And would you expect the president's budget this year to re-propose and try to start that conversation once again?

LEW: Look, I think we ended the year and begin this year in a place where we've made some small progress, but important progress, getting back to a more normal way of Congress doing fiscal policy, making budgets. And I think that's very important.

Obviously, we started a year in a place where people were talking about a grand bargain. The president put out a budget that did have very tough policies in it that are hard in terms of making changes to entitlement programs. He also had a tax reform proposal that would've raise revenues, so in a balanced way, we would've been able to put in place what was really at the core of earlier negotiations that he had been having with Republican leaders.

I—having worked on these issues for most of the last 30 years—would have hoped that we could have reached an agreement, because I thought then—and I continue to think—that would be in the best interest of our long-term fiscal path, our long-term economic path.

I think that, you know, the president's budget will speak for itself in just a few weeks. I'm not going to get ahead of him announcing any of his specific policies. But I think he demonstrated last year in his budget that he was—remained committed to a fair and balanced approach to having long-term fiscal policies that keep us on the right path. And I think that, you know, last year's budget reflected a deep—a deep set of convictions.

BUSSEY: Yes, please, in the back here.

QUESTION: Secretary, David Sanger from the New York Times. Good to see you. I wanted to ask you about China and cyber, a big issue when the Sunnylands summit came up and a continuing issue at your economic and strategic dialogue.

There's a sense that the Snowden revelations have sort of taken the pressure off of the Chinese. It has given them a way to argue—whether you believe the argument or not—that we're doing something akin to what they're doing and there's very little evidence that you see much of an abatement of the kind of behavior that you were so concerned about, about this time last year. So I was wondering if you could give us a sense of where that is going?

LEW: So, David, I have to push back on the premise a bit. I don't think there's any way to compare the kinds of intelligence activities that almost every country engages in for national security purposes with the deliberate theft of trade secrets for commercial advantage. There's no comparison. I don't think that anyone credibly believes that there is a comparison, and I don't think that the issue has in any way been taken off the table in terms of our conversation with the Chinese.

QUESTION: (OFF-MIKE)

LEW: You know, we have been very clear. I can't—I can't tell you that—that they have done an about-face. But I also think they understand that for them to play the role that they want to play in the world, as one of the great powers, as one of the rule-makers for the world, you can't be a rule-maker and engage in those kinds of practices.

BUSSEY: Yes, in the back here.

QUESTION: Barry Wood, RTHK in Hong Kong. Mr. Secretary, what about the IMF, money for the IMF, the overdue payments that all of the other countries talk about? And what about boosting the representation of developing countries, emerging markets within the IMF? It's moved at a snail's pace. What's your view on that?

LEW: I think that the United States' commitment to the IMF remains solid. We're the biggest contributor and participant in the IMF. It's critically important to U.S. economic well-being that the IMF be strong and that we have the kind of role in it that we've had since its inception after World War II.

In 2010, there was a negotiation which I think made very important progress in terms of rebalancing some of the shares of interest in the IMF, while maintaining the U.S. position with a significant enough share to have a controlling voice on important questions.

I have made no secret of the fact that I think it's critical for us to finalize the ratification of those. We made a full-court press to get it done and got close, but didn't get it done this past week. We are continuing to stand by our commitment, and we will get it done.

BUSSEY: Yes, please, right here.

QUESTION: Thanks. Elisa Massimino with Human Rights First. My question is about the role of money in the supply chains that enable mass atrocities, like those that are going on in Syria. Some people have argued that—including some former Treasury officials—that the Treasury ought to take stronger action against Russian banks that are involved directly in financing arms shipments to Assad. I wonder what you think about that and if—I know it can be awkward, since we're now partners with Russia in trying to resolve the situation, but do you think Treasury ought to be taking stronger action in investigating and even designating Russian banks that are directly involved in supporting Assad?

LEW: We—you know, through our responsibilities in overseeing the flows of financial funds and whether or not there is compliance with U.S. and international laws with regard to them, we have been very aggressive following the flow of funds. And when things violate the law, we take action without regard to the home country of the financial institution. It doesn't always make us popular. Sometimes it's friends who are very close; sometimes it's countries with whom we have more tension.

But, you know, our policy, whether it's sanctions regarding Syria or Iran or other designated countries, the designations aren't all the same, but our policy is to be vigilant in using these financial tools. So I would just say that we implement these laws and we don't look at the country of origin.

BUSSEY: Yes, please?

QUESTION: Father Andrew from the St. Paul's Foundation. Thank you so much for your government service, Mr. Secretary, particularly for Tip O'Neill. I grew up in the district.

St. Paul's distributes alms to the poor all over the world, in 30 different countries, in areas of severe conflict. I want to touch back on OFAC. There seems to be an extreme level—or extreme lack of accountability among the federal officers at OFAC. We can't get a name, we can't get a number when we're trying to provide food, shelter, clothing to people in refugee camps outside of Syria. We're trying to make financial transfers. Our banks have a question for OFAC, we have a conversation with OFAC. We can't seem to get anybody at the table.

How would you propose building in accountability so that we can provide these needed resources to people who have the opportunity to be fanatics and fundamentalists, but aren't, precisely because of the alms and the aid that we're giving them?

LEW: You know, I think OFAC does an outstanding job in very difficult circumstances. And there are often cases that are just heart-wrenching in terms of flows of funds that are inconsistent with our laws, but that have the effect of providing relief at the same time. Not just in Syria, it comes up in many troubled parts of the world.

I'm happy to look into the question of access and communication. Obviously, we strive to a high level of clarity and communication. But sometimes these issues relate to specific matters that are not public matters. And I would have to go and look at the specific matter in order to respond.

QUESTION: There is a General License 11A.

BUSSEY: Yes, please. Back here. Yes.

QUESTION: Thank you. Good morning. Paula Stern, Stern Group. My question's about the trade promotion authority. And the headline yesterday in one of the papers about the pushback from the Democrats. We will need bipartisan approval of authority for fast-track. And given the fact that we started the year with this new budget and deal in Congress, which suggests that maybe we're not going to be as toxic this year as—as the past, I'm wondering what your plans are, really, for whipping into place a bipartisan authority for the president, given the pushback from some of the Democrats?

LEW: I don't think there's anything new or unusual about the current need for there to be bipartisan support for trade promotion authority in order for it to pass. That's always required a bipartisan effort. There's always been challenges on both sides for different reasons.

You know, we have worked on a bipartisan basis with the leaders of the committees, and we'll continue to work on a bipartisan basis with the Congress to get it done. The president has made clear that it's important. It's one of those issues where there is the ability for there to be a bipartisan conversation. And it's never easy, so it's going to require effort.

BUSSEY: Do you care to venture an estimate—the question about a timeframe on this one?

(CROSSTALK)

BUSSEY: And on resolution of TPP and TTIP?

LEW: I, obviously, am very hopeful that the next round of discussions on TPP really accelerates the pace of progress, and that will have implications in terms of other schedules. So we'll have to see how the pace goes.

BUSSEY: Six months, 12 months?

LEW: I'm not going to put a number on it. Obviously, Ambassador Froman has been pushing. He pushed to have the meeting at the end of last year be an issue where the final issues get raised. He's going to continue pressing so that those issues, those hard issues that require countries to kind of move across the finish line get queued up. And I believe it will happen.

BUSSEY: Ambassador Froman, the U.S. trade representative...

LEW: U.S. trade representative.

BUSSEY: Yes, please, right here.

QUESTION: Twenty years ago, Jim Baker engineered the Plaza Agreement. And with the devaluation of the dollar, it stabilized our current accounts for almost 10 years. Recently, the Japanese have engineered a 20 percent devaluation of their currency. Would you expect it to have a similar impact on Japan's trade account? And how will the South Koreans and others react to this new change in their competitiveness?

LEW: You know, I think the challenges facing Japan and their economy have been profound for almost two decades. I think, you know, it has been a recurring argument made by the United States, the international community that Japan needed to take action to reverse almost two decades of deflation and economic decline.

You know, they have put in place policies. We still have to see what the so-called third arrow of their policies are. Those are the real reforms that will determine whether or not the future is one where they'll grow their domestic economy, grow domestic demand, and be able to continue to have the kind of growth that they're now seeing because of the shorter-term policies they've put into effect.

I think it was very important that last year, roughly this time, in February, there was an agreement at the G-7 and the G-20 that has stuck, which is that countries will be—hold themselves to the agreed-upon rule that they will use domestic tools for domestic purposes to grow their economy. That is a critically important frame, and it's something that Japan has to stick to.

You know, they need to get their domestic economy growing. Their long-term growth can't be rooted in a strategy that ultimately turns in any way towards, you know, reliance on unfair advantage because of exchange rate.

You know, we have kept an eye on that. Our currency report analyzed it very closely. We continue to analyze it very closely. And we said, as long as they stick to those rules, domestic tools for domestic purposes, it's in Japan's interests and the world's interests for Japan's economy to grow.

You know, the three big—you know, four big economies of the world are the United States, Europe, China and Japan. If any one of them is performing particularly sub-par, it creates problems that flow well beyond the borders. And there's a balance where—you know, we've got to keep an eye on it. We can't let it turn from the kinds of policies that are domestic policies for domestic purposes, but it is important for Japan, also, to grow.

BUSSEY: So we have two minutes' time for just one more question, right down here, the back of the room.

QUESTION: Thank you very much. My name is Chi Mi Nguyen (ph) with Voice of Vietnamese Americans. Thank you, Secretary.

I come back to your focus on standards and implementation. And I'd like to hear from you the lessons learned from our WTO and the coming TPP and TTIPs and other free trade agreements, because I think there's a lot of doubt and uncertainty in our (inaudible) regarding the unemployment that we've been experiencing for the last 5 years, actually for the last 10 years.

You see, since the WTO, we have suffered the currency war and many other wars with rising power China. And the recent still anti-dumping situation with the WTO that's happened threatened our industry and our market.

So our question to you is, as the treasurer, secretary of treasury, where do you see we need to do to ensure the implementation phase of our agreements to secure our currency and our jobs? Thank you, for the U.S., for the Americans.

LEW: Yeah, I think we have been very clear in all of our conversations, in the multilateral negotiations and our bilateral conversations, that we need a level playing field with clear rules, and those rules need to be enforced.

So taking enforcement actions to make sure that the agreements are adhered to is a critical part of having effective rules of the road. Rules that aren't followed aren't really rules.

So that's why WTO actions are brought from time to time. And the goal is to have countries observe the rules, not to be in a place where one has to be taking actions to—whether it's for one industry or another—to enforce the rules.

I think that if you go back to what I was saying a few minutes ago, in terms of the spirit of the negotiation of TPP, it's very encouraging. You know, I was just recently in Asia, went to a range of countries with extremely different economies. I was in Japan, China, Malaysia, Vietnam, and Singapore.

In each of the countries, at a very different point of internal economic development, there was a desire to participate in a high-standard trade agreement. There was also anxiety about, what did that mean in terms of the domestic economy? What would be the transition rules? What would be the reflection of the fact that countries don't come in exactly the same position?

And those are the kinds of issues that are being negotiated in the TPP with a sensitivity to the fact that if we get all of the countries to credible and enforceable, high-level rules, it's good for each of us individually and it's good for us globally. But it's not good if the rules are broken and we need to be vigilant as we are to make sure that, when we make agreements, the agreements are kept.

BUSSEY: Secretary Lew, you've got to get to work before the stock market opens at 9:30, so I want to—I want to thank you and—for joining us today and also thank the Council on Foreign Relations for holding this event.

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